EDF / 2018 Reference document

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PRESENTATION OF EDF GROUP Legislative and regulatory environment

Mechanism for compensating the additional costs of public service Compensation of Public Electricity Service costs (CSPE) Article L. 121-6 of the French Energy Code lays down the principle that the State must compensate in full the costs that are attributable to the public service duty to generate and supply power (electricity and gas) assigned to EDF in particular, to other power producers and to the LDCs. For electricity generation, the expenses defined by Article L. 121-7 of the French Energy Code include: the additional costs that result both from electricity purchase agreements entered ■ into by EDF and the LDCs after tendering procedures (Articles L. 311-10 et seq. of the French Energy Code) and from purchase obligation agreements signed within the framework of Articles L. 314-1 et seq. of the French Energy Code, as well as additional remuneration agreements that are entered into pursuant to Articles L. 314-18 et seq. of the French Energy Code; in areas that are not interconnected to mainland France: ■ additional generation costs that are not covered by the generation portion ■ in regulated sales tariffs, the costs of storage facilities managed by the electricity system manager, within the limits of the additional generation costs they help to avoid, additional electricity procurement costs (other than those, mentioned ■ above, linked to the purchase obligation) that are not covered by the generation portion in regulated sales tariffs, within the limit of the additional generation costs they help to avoid, the costs paid by electricity suppliers in respect of energy demand control ■ initiatives, less any income received through these initiatives, within the limit of the additional generation costs they help to avoid, the costs of studies paid by a producer or supplier with a view to ■ implementing electricity supply projects that are identified in the Decree on the multi-year energy programme; and, since the Amended Finance Act for 2016, the direct costs for EDF and the ■ LDCs directly induced by the signing and managing of purchase contracts, contracts for additional remuneration and contracts signed following tendering procedures, within the limit of the costs that an average undertaking that would have incurred if properly managed and adequately equipped. For the supply of electricity, the costs defined in Article L. 121-8 of the French Energy Code include: revenue losses and additional costs incurred by suppliers due to the ■ implementation of “energy vouchers”; costs incurred by suppliers as a result of their participation in the smart meter ■ display plan established for low-income persons. Moreover, in accordance with the provisions of Article L. 121-8-1 of the French Energy Code, the purpose of the CSPE is to finance the costs incurred by operators of public electricity transmission networks in respect of the calls for tender they may initiate if the load shedding capacities do not meet the targets stipulated in the multi-year energy programme. The mechanism for compensating public service costs, governed by Articles L. 121-9 et seq. of the French Energy Code, was reformed as of 1 January 2016, pursuant to Law no. 2015-1786 of 29 December 2015 (the Amended Finance Act for 2015), which aims to secure the financing of the costs of the public energy service. The electricity (and gas) public service costs are now financed in full, as follows: the costs linked to energy transition, which correspond to the subsidy ■ mechanisms for renewable energies, as well as the reimbursement of the “long-term” compensation deficit incurred by EDF as it stands on 31 December 2015, are registered in a special purpose account (CAS) for “energy transition” that was created by the Amended Finance Act for 2015. Since early 2017 the CAS has been funded by a percentage of the revenue from the TICPE and to a lesser extent by the TICC. Fossil fuels are thus helping to pay for the energy shift;

Disputes concerning third-party access to networks are heard by the Settlement of Disputes and Sanctions Committee (CoRDiS), which is part of the Energy Regulation Commission (CRE). The tariffs for using the Public Electricity Transmission and Distribution Networks (TURPE) referred to in Articles L. 341-2 et seq. of the French Energy Code entered into force on 1 August 2017. They have been defined, with regards to transmission (TURPE 5 HVB) through a decision of the CRE of 17 November 2016 and a decision of the same date concerning distribution (TURPE 5 HVA/LV). Through its decision of 26 October 2017, the CRE added to its decision of 17 November 2016 on TURPE five distribution of a decision determining the conditions for covering the costs associated with customer management (“supplier commissioning”). Subsidy mechanisms for certain production sectors EDF is subject to electricity purchase obligations that result in contracts being signed with facility operators. The purchase obligation system, which was created by Law no. 2000-108 of 10 February 2000 on the modernisation and development of the public electricity service, was amended by Law no. 2015-992 of 17 August 2015 on Energy Transition for Green Growth, which clarified some aspects of this system and created a new form of subsidy in the guise of additional remuneration. The subsidy mechanism for certain production sectors that results from the aforementioned Law of 17 August 2015 now has three separate systems. Firstly, the purchase obligation regime provided for by Articles L. 314-1 et seq. of the French Energy Code. These articles provide that EDF (as well as the LDCs that are responsible for supply in their service area) must sign purchase contracts, at the request of producers, for the electricity generated by technology sectors, the development of which the public authorities wish to support, either because they use sources of renewable energies, or because they have a specific form of energy efficiency (e.g. cogeneration). The eligible facilities are listed in Article D. 314-15 -of the French Energy Code. Article R. 314-2 of the French Energy Code provides that producers who benefit from the purchase obligation must sell all of their production to EDF under agreements entered into on the basis of indicative models approved by the Minister for Energy. Purchasing terms and conditions, specifically the electricity purchase prices, are set by order of the Ministers for Energy and the Economy. Secondly, the additional remuneration regime, which was introduced by Law no. 2015-992 of 17 August 2015 on Energy Transition for Green Growth and is governed by Articles L. 314-18 et seq. of the French Energy Code. The additional remuneration takes the form of a premium that is paid to producers as a complement to their income from selling the electricity they produce on the market, as well as the assignment of their capacity certificates. In this respect, EDF is obliged to enter into an additional remuneration contract with eligible producers who request one and with certain producers who currently benefit from a purchase obligation and who wish to benefit from an additional remuneration agreement for the remainder of the term of their initial purchase contract. The eligible facilities with additional remuneration are listed in Article D. 314-23 of the French Energy Code. Thirdly, the tendering procedure which, pursuant to Articles L. 311-10 et seq. of the French Energy Code, may be launched by the Minister for Energy when production capacities do not meet the targets of the multi-year energy programme. EDF is then required, outside the areas served by LDCs, to enter into an electricity purchase contract or a contract that provides for additional remuneration with the selected bidder(s) (this is a memorandum of understanding in the event that it is EDF itself in the capacity of “producer” that is chosen following the call for tenders). The additional costs for EDF and the LDCs that result from contracts signed pursuant to the obligation to purchase energy are compensated by the State and financed, in particular, by the “Energy Transition” special purpose account, created by the Amending 2015 Finance Law. For 2018, Article 50 of Law no. 2017-1837 of 30 December 2017 (the Finance Act for 2018) substitutes these TICC and TICPE percentages with an amount in order to overcome the return forecast uncertainties of these taxes as well as the revenue expansion of the CAS which will incorporate the income generated by the auctioning of the guaranteed sources provided for in Article L. 314-14 of the French Energy Code. Likewise, the 2019 Finance Act stipulates a slight increase in the TICPE share from €7,166.3 million to €7,246.4 million in line with spending levels budgeted for 2019.

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EDF I Reference Document 2018